AAPL JAN 07 calls: 80 vs 90

[spreadn00b]

Joel,
A couple of things besides the books. Books are fine because they help drive home some basic concepts and help get a grasp on advanced concepts. Books like Natenburg's will probably have you dazed and confused after the basics (or at least they did a dummy like me).

What really helped me start to make sense of the books (and now I use them for reference quite a bit) is getting some real world experience. Fortunately, with ET as a wonderful resource you get pseudo-real world experience through others. My eyes really started to open by reading the SPX Credit Spread thread (it's over 2000 pages now), but you start to understand how option positions play out. I also recommend watching everything you can with Dan Sheridan @ the CBOE website. He takes various strategies and picks them apart and offers suggestions as to how to enter, exit and adjust. They're free and you can see them here: http://www.cboe.com/LearnCenter/webcast/archive.aspx

Quote from Joel Reymont:

Well, my obvious bet is that AAPL will make a big move _before_ expiration and earnings as they have MacWorld (their largest yearly expo) in the beginning of January where they will announce new products like iPhone.

I'm a software developer and a voracious reader of tech news so I'm trying to buy the rumor and sell the news here.

 

[forex-forex]

Quote from DeltaSpread:
I have actually been watching the call volume on Apple the last week & its been crazy. Between the 90/95/100 strikes there is currently open interest of roughly 170000 contracts in JAN, so many people share your sentiment.

Open interest means nothing. Could be long calls, short calls, credit spreads or debt speads. Volume and open interest on Calls and/or Puts can be both bullish or bearish.

 

[Joel Reymont]

Quote from DeltaSpread:

Nice - I figured as much and I didnt mean to state the obvious. My only point was that, you may not want to shoot your whole wad with the position you open now, because calls will be a heck of allot cheaper two days before the expiration/earnings announcement.

Are you suggesting that buying a couple of days before Jan expiration would be a great opportunity? Just making sure I understand.

Quote from DeltaSpread:
I have actually been watching the call volume on Apple the last week & its been crazy. Between the 90/95/100 strikes there is currently open interest of roughly 170000 contracts in JAN, so many people share your sentiment.
[/B]

The issue for me is choosing the call to buy. I don't want to go to 100 and the premiums on the 90 calls are quite high (5.50 ask - .36 = 5?).

With the 95s there's still risk that the calls will expire worthless. The break even on the 95s at 3.40 is 98.40 according to ToS and this includes the 14.75 commission.

I know it's very risky but I'm much inclined to go with a couple of 80 call which would set me back ~2.5k. I would then put a mental stop loss on the position.

Quote from DeltaSpread:
What was interesting, is that, when the Nasdaq this week had those two strong days, Apple did not participate in the advance. [/B]

Well, I have a Jan 40 put on Sony and while the market has been going down today, Sony is up .23. There are no news to justify this, nothing apart from Sony promising to stuff their rocket-science CPU into new consumer products. Go figure! SNE went up on a huge volume spike in the morning and has been hovering about +.20 throughout the day.

I obviously have a lot to learn since I can't explain happenings like this.

 

[Joel Reymont]

Quote from spreadn00b:

What really helped me start to make sense of the books (and now I use them for reference quite a bit) is getting some real world experience.

That's what I'm busy with right now at ToS. Just in:

BOT +2 AAPL 100 JAN 07 80 CALL @ 12.20 PHLX

I suppose I just had to teach myself a lesson.

Quote from spreadn00b:
Fortunately, with ET as a wonderful resource you get pseudo-real world experience through others. My eyes really started to open by reading the SPX Credit Spread thread (it's over 2000 pages now), but you start to understand how option positions play out.

Yep, I have yet to read through the whole thread but I have it open in the browser.

Quote from spreadn00b:
I also recommend watching everything you can with Dan Sheridan @ the CBOE website.

Will do, thanks a lot!

 

[DeltaSpread]

Quote from forex-forex:

Open interest means nothing. Could be long calls, short calls, credit spreads or debt speads. Volume and open interest on Calls and/or Puts can be both bullish or bearish.

Thanks for bringing this point up. This goes without saying and I didnt mean to imply it, that every single option contract open at those strikes meant necessarily a long bullish sentiment. I was merely saying that, there are some others out there, that must share or speculate with the views of this thread poster.

 

[forex-forex]

I would recommend a Debt Spread on AAPL instead of long calls only.

Sell one or two stikes out with the same expiration to reduce your loss if the stock moves agianst you.

 

[DeltaSpread]

Quote from Joel Reymont:

<B>Are you suggesting that buying a couple of days before Jan expiration would be a great opportunity? Just making sure I understand.</B></quote>

Yes - this would allow you the greatest set up for risk/reward vs. cost, since you would be able to buy the calls at their cheapest point two days out from Jan expiration. But again, this would all be riding on the fact that AAPL reports stellar earnings and the market reacts very favorably to this news and gaps the stock up higher.

Also - technically - watch very carefully AAPL -- it just breached that $90 mark I was telling you about. Obviously at some point before MACWORLD, it will ramp up again, but timing is pretty important.

It sounds like the 90 & 95 calls are quite aggressive needing AAPL to be at $95 or well above this, just to break even.

As forex mentioned, you may want to consider selling a higher out of the money strike call against your deep in the money $80 strike call to dramatically reduce your cost.

You could sell a $90 strike against your $80 strike and pocket the difference of $10.00 which would be somewhere between $3.5 & $4.00 or $350 or $400 per contract, as long as AAPL is above $90 at expiration.

 

[DeltaSpread]

Quote from DeltaSpread:

Quote from Joel Reymont:

<B>Are you suggesting that buying a couple of days before Jan expiration would be a great opportunity? Just making sure I understand.</B></quote>

Yes - this would allow you the greatest set up for risk/reward vs. cost, since you would be able to buy the calls at their cheapest point two days out from Jan expiration. But again, this would all be riding on the fact that AAPL reports stellar earnings and the market reacts very favorably to this news and gaps the stock up higher.

Also - technically - watch very carefully AAPL -- it just breached that $90 mark I was telling you about. Obviously at some point before MACWORLD, it will ramp up again, but timing is pretty important.

It sounds like the 90 & 95 calls are quite aggressive needing AAPL to be at $95 or well above this, just to break even.

As forex mentioned, you may want to consider selling a higher strike call against your deep in the money $80 strike call to dramatically reduce your cost.

You could sell a $90 strike against your $80 strike and pocket the difference of $10.00 which would be somewhere between $3.5 & $4.00 or $350 or $400 per contract, as long as AAPL is above $90 at expiration.

 

[DeltaSpread]

Quote from DeltaSpread:

Quote from Joel Reymont:

<B>Are you suggesting that buying a couple of days before Jan expiration would be a great opportunity? Just making sure I understand.</B></quote>

Yes - this would allow you the greatest set up for risk/reward vs. cost, since you would be able to buy the calls at their cheapest point two days out from Jan expiration. But again, this would all be riding on the fact that AAPL reports stellar earnings and the market reacts very favorably to this news and gaps the stock up higher.

Also - technically - watch very carefully AAPL -- it just breached that $90 mark I was telling you about. Obviously at some point before MACWORLD, it will ramp up again, but timing is pretty important.

It sounds like the 90 & 95 calls are quite aggressive needing AAPL to be at $95 or well above this, just to break even.

As FOREX mentioned, you may want to consider selling a higher strike call against your deep in the money $80 strike call to dramatically reduce your cost.

You could sell a $90 strike against your $80 strike and pocket the difference of $10.00 which would be somewhere between $3.5 & $4.00 or $350 or $400 per contract, as long as AAPL is above $90 at expiration.

 

[spreadn00b]

Crawl before you run.